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CBS And Viacom: How To Play The Merger

Steven Mallas profile picture
Steven Mallas


  • CBS and Viacom are working on a merger deal.
  • The idea of this merger is to create competitive scale in a world where content is becoming more expensive.
  • It probably is best for most investors to wait on the sidelines, or to hold (if one is already invested), until the merger occurs.
  • The key element here is the post-merger strategy - that will tell the tale of this situation's potential as an investment.

It seems that it is finally going to happen. CBS (CBS) (CBS.A) and Viacom (NASDAQ:VIA-OLD) (NASDAQ:VIAB) will merge. When it exactly will happen is unclear to me, as is what the detailed value of the transaction will be to both sides.

Traders are obviously active participants as well as those who already own the stocks of either one or both companies. If you own the shares, it's probably best to hold (especially on the Viacom side, as that company is fighting for more value).

But if you are not directly involved in the stocks at the moment, my personal opinion is to wait until after the merger to decide what to do with the new company (unless there is some particularly compelling price action that almost obligates a trade).

What I want to do here, in brief, is think about what a CBS-Viacom merger means for the companies, and the industry. I want to consider how it will affect other business models, such as Disney (DIS), Lions Gate Entertainment (LGF.A) (LGF.B), or Netflix (NFLX), in a competitive fashion.

Literally, the first thing I thought of when approaching this situation is the conflict among management. Viacom and CBS has had many issues with the controlling Redstone family. CBS CEO Leslie Moonves, who has delivered many hits over at the storied broadcaster, has made his intentions clear - he will be the leader of the combined company, or it's no deal.

Shari Redstone, in my opinion, seems to be caught in the middle... her father Sumner Redstone is unfortunately probably not involved in any of the negotiations because of his age/health, and Viacom's CEO, Bob Bakish, is resisting selling to CBS for what he believes to be a price that does not exist in parity with the potential value of his side's

This article was written by

Steven Mallas profile picture
I have previously written articles for The Motley Fool, TheStreet, and AOLs BloggingStocks.I also write fiction. I have stories published at Nikki Finke's Hollywood Dementia site, including "The Streaming Service," "The Screenwriterman," "Mygalomorph" and "Spielberg's Last Film."Here is a link to my YA book, "Abner Wilcox Thornberry and The Witch of Wall Street."This is a collection of short horror stories: Tales From Salem, Mass.

Analyst’s Disclosure: I am/we are long DIS, LGF.A, LGF.B, NFLX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (16)

Steven Mallas profile picture
Thanks for all the comments and the read. I appreciate it.

On the issue of debt: I agree, it can be a problem, especially if times start to go south. But the theory would be that the increased scale would make up for that. Still, something to watch. And DG good point/analysis about the price action and what it might indicate.

On the comment of just buying something like Indiana Jones...I thought that too in the past. Disney could make an offer to buy up just that trademark, take everything, all distribution/library-m... rights, instead of buying the whole company. Disney should buy Spider-Man from Sony, for instance, make an offer that can't be refused. I remember too when the split happened years ago...it was odd to me. If the company had a bad, slow culture, I always thought that the controlling family could just order everyone to be synergistic. Guess it's easier said than done, but the family seems to have always put its trust in management that eventually becomes too strong and destructive for them. Even Moonves probably called the shots for far too long.

The top thread is very interesting to me...is it all a bluff? I was wondering that as well, to some extent, but only very casually...perhaps you guys are onto something.

And JCB: I have to tell you, that is a great observation about "A Quiet Place." It might be worth an article. I have to wonder if Viacom will now try to play -- for real -- the Uni/Blumhouse game and go low-budget/high-concept. Viacom should study that film very, very carefully and do everything in its power to replicate its template...

Thanks again for the comments...
VIAB price keep trudging higher while CBS keeps sliding lower.
I think the deal is close to being consummated.
I guess now I doubt VIAB shares will be converted for .68 (or higher) shares of CBS and that .55 seems more likely. The "rapid accretion" would be nice.
At this point I would like to see W. Buffet or even G. Soros swoop in and buy up the entire shebang and fire all of them.May luck C. Icahn will come calling with yet another greenmail extortion.
Sidebar comment on VIAB: A Quiet Place is a hit. Paramount getting back on its feet
Jamjack profile picture
A good article. Mostly agree. if not involved with these two stocks already steer clear. I hold Viacom and will wait to see but almost wish I had not become involved I am not impressed with the dynamics of marriage of viacom/CBS. if I can just turn a profit and get out I will be satisfied.
The only person who wants this merger to happen is Shari Redstone. The whole reason the companies split in the first place is because the Redstones felt that the company that would bear the name "Viacom" would be the stronger of the two in the long-run because they believed in film and cable more than CBS, which was largely built from the pay-TV and broadcast television units, totally unprepared for the oncoming digital divide that would doom traditional cable and the theater-going experience. It's a shotgun wedding with Viacom as the supposedly-pregnant bride who lied about sleeping around with their distant cousin CBS. The Viacom name should be dead if Redstone gets her way, because in the end, having total control over CBS is key.

Of course a combined CBS/Viacom would be a more attractive package than Viacom alone or CBS by itself for potential bidders in the future, especially if the AT&T/TWX trial ends allowing that merger to happen.
Not just Shari Redstone, but me as well.

I was expecting the CBS-Viacom merger happens and Disney can make an exchange deal with CBS/Viacom to trade some fewer assets. Where Disney gets fewer assets from CBS/Viacom (the 30% stake of Rainbow S.r.l. (including the rights to Winx Club) and the rights to four Indiana Jones movies), while CBS/Viacom gets fewer assets from Disney (getting the rights to Doug back and getting a sportcaster from ESPN to work for CBS Sports)
Those are very, very minor assets that you've mentioned. Viacom doesn't give a toss about the Rainbow stake they have (it's such a non-issue, I doubt they even know/care that they still own that minority stake in an Italian studio). And if CBS and Viacom merge, Disney's not going to touch them at all because Disney owns ABC, and there's no way in hell Disney's selling off ABC in favor of CBS.

And JFC, why do people want Disney to own EVERYTHING UNDER THE SUN?!? Disney doesn't need to own everything, especially your damn childhood. Everybody's already assuming the Fox deal is a done deal. I'm hoping that deal blows up and doesn't happen at all because it doesn't mean we'll get "more Marvel films," but fewer theatrical releases.
My principal concern is the debt of CBS and VIAB and the resulting merged company.

Per Guru Focus:
Market Capitalization: $19 billion
Enterprise Value (EV): $28.9 billion
Long term Debt: $10.1 billion
Debt-to-Equity Ratio: 5.14
Interest Coverage Ratio: 5.44

Market Capitalization: $12 billion
Enterprise Value (EV): $22.4 billion
Long term Debt: $10.1 billion
Debt-to-Equity Ratio: 1.56
Interest Coverage Ratio: 4.22

For CBS debt is rising, while for VIAB debt is falling

And while the numbers look good now, how will they hold up when the U. S. economy enters a recession in 2019 or 2020 as the flattening yield curve suggets?

The Fed seems to be signaling no great urge to raise interest rates. If that is really the case, it would be the 11th hour for CBS-VIAB to refinance at low rates and pay down debt.

I would rather see an aggressive debt pay down plan vs. an aggressive share buyback plan. But I figure I am in the smallest of minorities.
I have owned shares in CBS and or Viacom since the early 90's. It has been a hugely profitable investment over the years. I sold Viacom as the Redstone family drama spilled into the company and this morning I sold CBS. Les Moonves is the goose that laid the golden egg and the idea that he could be fired because Shari Redstone wants a yes man is a step to far. I am sad to see the company come to this. I have always accepted the trouble that came along with owning a closely held company but now it seems like it is being run for the benefit of one person and that I cannot tolerate.
Mitch Zeitz profile picture
Redstone is totally bluffing imo about Moonves. He's a keeper.
It is a bluff, totally, but a potentially disastrous one. It is like telling your wife you wish you had never married her, it seems like a good idea until she agrees with you. If Moonves gets pissed off about it and starts to look around he can find a job anywhere. And then you own two big losers.
Indeed, and considering the state of the industry right now, Moonves could either head the entertainment side of AT&T, which is still in the hands of the feds now but could combine Time Warner (Bewkes will head that company for a few more years before he retires around 2021) with AT&T's Otter Media, which they're planning on buying outright, or Disney if they could accomplish the Fox firesale and James Murdoch doesn't want the job that Robert Iger's leaving. Depending on his patience, Moonves, a proven leader in charge of CBS transforming that unit beyond broadcast and launching multiple digital platforms transforming television, could either become head of the entertainment company of the future with a pulse in traditional and digital entertainment or a global empire with the largest media library and digital capabilities to dethrone Netflix.

Redstone's bluff is not going to work.
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